Bull or Bear Market? (Week of April 6, 2015)

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

Analysis: At first glance, the clues and indicators appear to be neutral. On the other hand, because of the poor jobs numbers on Friday, the futures are pointing down, which could lead to an ugly week. In addition, a Bankrate survey came out last week, and 85% of professional Wall Street investors believe the market will be higher next year than this year. These are the type of numbers you see at market tops. In addition, according to the latest ICI numbers, investors have been panic buying equity ETFs. There was an increase of 58 billion dollars in domestic equity ETF purchases for a total of 1.28 trillion dollars. All of this tells me that professional investors are afraid of missing out of this bull market, and are pouring money into the stock market. Conclusion: Red Alert.

Opinion: I just finished a column for MarketWatch (see link above). In the column, I laid out the facts, and they are not pretty. The ugly job numbers, the high sentiment from Wall Street pros, the blowoff top on March 20, and the weak rallies all point to a rocky April.

Of course, beginning on Monday morning, a rush of buyers will enter the market and try to limit the damage. Look for how the market closes at the end of the day, and if it is on higher volume. If the market plunges on higher volume, that is a bearish sign. If not, the week might be saved.

The longer it takes for the market to top out, the more severe the downturn. If the pros are right and the bull market still has legs, then the S&P must climb above 2100, which it hasn’t done in a while. In addition, the indexes must climb above their moving averages and stay above. We’re not seeing that right now, which is why this week is so important.

As I’ve said for months, this is the time to move some money to cash, to protect your profits, and not participate at these all-time highs (my opinion only). If the indexes could surpass the all-time highs on strong volume (and a strong NYSE Tick), I’d be impressed. So far, this hasn’t happened. No matter how much spin you hear (i.e. any pullback is a buying opportunity), be very careful this month. If I’m right, April Fool’s Day will last longer than a day.

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